Busch: European Credit Crisis Makes Dollar King

The take over of Fortis was complicated by the Dutch nationalizing their portion of the bank. This left Belgium and Luxembourg officials to take the remaining pieces and sell it to French bank BNP.

This is precisely why investors have become nervous over the capabilities of European officials to deal with the credit crunch in a coordinated, EU wide manner. Each action appears to be country centric with no over-arching solution like in the United States. However, they do play follow-the-leader well after Ireland guaranteed all bank liabilities last week, Germany guaranteed all of its consumer bank deposits with Sweden, Norway, Austria and Denmark engaging in similar actions.

However, the meeting over the weekend by European finance officials did result in one major change. "The European Union intends to make exchange rates a permanent part of the agenda of its regular summit meetings with other countries, the Financial Times Deutschland reported Sunday.

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According to MNI, the paper cited an EU declaration entitled "A coordinated response to the economic downturn" that it said European finance ministers would ratify at their meeting on Tuesday in Luxembourg. "The finance ministers are above all addressing Europe's view that currencies like China's yuan are undervalued vis-a-vis the euro, the FTD reported." To me, this means Europe is now going to aggressively pursue a weak currency policy to help stimulate their economy.

With the turmoil in Europe, the change in the EU finance ministers targeting the euro, and exiting of yen carry, the US dollar has become king. If it's even needed, this will provide additional comfort for the Federal Reserve to remain aggressive in supplying liquidity to help ease the credit crunch.

These are dark times for the equity markets and the global economy. The majority of new economic projections are negative and are calling for prolonged recessions with growth not returning until late 2009. The safe havens appear to be the US dollar and the Japanese yen.